Global Pendulum
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Issue 1 · Late October 2026

Valuation and Leverage

US valuation (Shiller CAPE), the US and Taiwan Buffett indicators, and US broker margin loans. Each number compares the indicator only with its own past: the share of past months it is higher than; 50 is normal. For prices and rates, what is compared is how far the reading is from its own 10-year average: 100 means the furthest from that average, not necessarily a record price or rate.

This issue

Combined, the 4 indicators in this category stand at 95 hot.

  • Taiwan Buffett indicator100hotrelative to its 10-year average, this stretch is the highest since the data begin in 2006
  • US valuation99hothigher than 98% of past months; last this high in Sep 2000
  • US Buffett indicator91hotrelative to its 10-year average, higher than 91% of past months; last this high in Q4 2021

The others: US margin loans 88 (hot).

Hot and cold describe position, not good or bad: warm does not mean a fall is coming, and an extreme reading does not mean a quick reversal. We describe history only, with no buy or sell advice.

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Where it stands now

Where each indicator stands

The category combined

Combined position over time

Each month we take the median of the indicators’ positions, going back to 1971.

Data: sources are on each indicator’s page. Positions and the median: our calculation.

coldcoolneutralwarmhotHatched = earlier periods that were also hot

When it was here beforeEarlier hot periods (4), plus the current one

US stocks after it began, cumulative1 yr2 yr3 yr

  1. Apr 1983⁠–Jun 19833-month period, hot throughout1 yr−0.1%2 yr+14.5%3 yr+50.9%
  2. Jan 1986⁠–Sep 198721-month period, hot in 18 of those months · 1987 Black Monday1 yr+27.0%2 yr+20.3%3 yr+37.1%
  3. Aug 1991⁠–Sep 2001122-month period, hot in 107 of those months · 2000 Dot-com bubble1 yr+7.3%2 yr+16.6%3 yr+19.2%
  4. Oct 2020⁠–Mar 202218-month period, hot throughout · 2022 Inflation shock1 yr+30.5%2 yr+9.0%3 yr+24.9%
  5. Apr 2024⁠–⁠now28-month period, hot in 22 of those monthsStill under way

For each period, the changes 1, 2 and 3 years after it began are cumulative and measured from its first month; “What happened next” is measured from every hot month, so the two give different numbers. The events named beside each period are major events of that time, not necessarily related to the readings here.

What happened nextHow US stocks moved after earlier months with Valuation and Leverage hot

Bars: median cumulative changeEarlier months with Valuation and Leverage hot, excluding the current period (146)All months (664)

1 yr later
+9.6%down in 32% of cases
+11.3%down in 24% of cases
3 yr later
+31.8%down in 20% of cases
+31.2%down in 17% of cases
5 yr later
+59.0%down in 29% of cases
+57.7%down in 18% of cases

Median of the deepest drop below the starting month within the next 5 years: −3.6% for months with Valuation and Leverage hot; −5.4% for all months.

“US stocks” means the S&P 500 price index compiled by Professor Shiller (monthly average, excluding dividends).

Has hot or cold lined up with later returns?No clear link in the past

1971⁠–⁠2021: average yearly change in US stocks over the next 5 years

Hottest 20%
+8.4%a year
All months
+8.5%a year
Coldest 20%
+7.9%a year

There is no clear relationship between hot or cold and what came next. The gaps between the bars are not consistent across months (rank correlation below 0.25); this is a record of the past, not a forecast.

What it is linked to

Links involving Valuation and Leverage

US 10-⁠yr yieldtoUS valuationCommon explanation: Cause · opposite direction

Higher rates make future profits worth less today, weighing on valuations

This issue: US 10-⁠yr yield at 91 (hot), US valuation at 99 (hot) — both above normal, not in line with the common explanation (this is an inverse link).

Weak or inconsistentAgreement +0.37 · in step in 24 of 49 5-year periods

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